Banks Build Super-Managed Accounts

As financial services firms continue to launch managed account platforms, a handful of banking companies have begun offering unified managed accounts - what many believe is going to be the next generation of the hot product.

Wachovia Corp., Citigroup, KeyCorp's McDonald Financial and PNC Financial Services' PFPC Worldwide are among the growing number of banks offering unified separately managed accounts. Wachovia started its unified managed account platform, Diversified Managed Allocations, in December and by Aug. 31 had accumulated $500 million through it.

In a unified managed account, the investment manager puts all of a wealthy client's investment products, including SMAs, mutual funds and annuities, into an "overlay" account. Unified managed accounts balance all of a customer's investments - hedge funds, annuities, exchange-traded funds, and mutual funds - according to an investment plan just as ordinary managed accounts manage the securities within them.

"It coordinates a couple of managed accounts, an exchange-traded fund, a registered hedge fund and makes everything work together," said Lee Chertavian, chairman and chief executive officer of Placemark Investments, a Wellesley, Mass., company that supplies unified managed accounts to firms including McDonald Financial.

Placemark began offering unified managed accounts 18 months ago and now has 5,000 advisers who are authorized to sell the product. Chertavian said banks are approaching the new product slowly but that Placemark is in talks with several that it hopes to sign up soon.

"Some banks have developed pretty good separate account programs; some haven't," he said. "This is a market that you have to get into with baby steps. We tend to work better with banks that are already offering managed accounts and want to enhance their services for their $1 million to $10 million trust clients."

Chip Walker, a senior vice president and the director of managed accounts at Wachovia, said its platform offers asset allocation and diversification tools that let products be aligned into a single account. An overlay manager sets parameters to insure that specific segments of a portfolio are not overweighted or underweighted.

"We feel confident that as the popularity of separately managed accounts continues to rise that these products will attract the lion's share of the assets," Walker said. "At the end of the day, it is an easier way to make the lives of clients and financial advisers simpler."

TowerGroup Research projects that managed accounts will grow at a compound annual rate of 18.5%, from $399.7 billion in 2001 to $1.1 trillion in 2007. Matt Schott, an analyst at TowerGroup Research, said that unified managed accounts will be a growing part of managed account sales.

"There is this whole kind of rolling shift going on in investment products," he said. "It is a wave that started in the middle of the ocean and brought people into fee-based products, and it is gathering steam and continuing to move them."

Schott said conservative bank investors are interested in unified managed accounts because of the extra layer of risk and tax protection they provide. "Investors are moving from transactional to advice-based investment products," he said. "They want to find a more profitable model for holding securities."

Earlier this month, PFPC announced it would buy Advisorport, a provider of a unified managed accounts platform, to strengthen its managed account services business. Tom Sholes, a senior vice president and the managing director of PFPC's managed account services, said the company wants to develop its product array.

Greg Horn, the chief executive officer and founder of Advisorport, said offering unified managed accounts is crucial because households always hold a number of investment products that need to be carefully balanced.

"If you can be a client's 100% solution," Horn said, "you will have a higher level of success."

The banking channel's market share of managed account sales grew from 4% in 2001 to 6% last year, according to Darlene DeRemer, the executive managing director at NewRiver, a research firm that tracks investment products.

"If you look at the one albatross around managed accounts over the past 10 to 12 years, it has been the bigger that your clients get, and the more managers that they hire, the more cumbersome the process becomes for them," said Wachovia's Walker. "It is a cumbersome process with multiple statements and multiple performance reviews. Now, with this platform, we can open one account and keep more customers happy."